Inflation watch is in order this week, but it is the wrong thing to look at. I expect that the PPI, CPI, the Beige Book, and the JOLTS report will be analyzed greatly when released. The extensive economic calendar will be discussed along with the intense barrage of stories of the midterm election.
Inflation talk includes:
- What would the market have done if the FOMC did not increase interest rates?
The Fed is behind the curve on fighting inflation.
- Higher rates of inflation will force the fed to increase rates faster.
- Inversion of the yield curve. Workers should be getting a raise, and that is a signal of inflation.
- A circular spiral to say the least. A common story that has been repeated over and over.
But a story that needs to be pushed aside to concentrate on the real theme.
- According to Flirting with Models, the Fed policy supported economic growth. Stocks prices are fairly priced based on the expected earnings.
- The Fed Policy printed money, but that is not the only reason stock prices have risen. The balance sheet has expanded, but not in equity purchasing. Look at the
- M2 level that has increased at a normal pace.
- The Fed will look at the entire market, not just inflation to make their decision. Every statement that I have read indicates a patient approach.
The yield curve is sited as a forward-looking metric for a market decrease. If inflation increase, yields will move higher on the longer notes. This will steepen the curve.
It makes sense to keep investments in the overall market.
The S&P 500 has been up to over the last three months, and I continue to hold some LEAPs in the SPY.
A Lot of Unfinished Work on Trade. The White House is putting NAFTA in uncharted territory by proceeding with a U.S.-Mexico trade agreement while leaving Canada in negotiating limbo.
The Stress of High Oil Prices. For the first time since 2014, the price of Brent crude oil traded above $80 per barrel all week.
What’s in a Name? Macedonia is holding a nonbinding referendum on Sept. 30 to change its official name from the Former Yugoslav Republic of Macedonia to the Republic of North Macedonia.
Watch on Tajikistan. We’re paying close attention to Tajikistan as rumors are building over a military operation on the Tajik-Afghan border that could include foreign forces.
A Litmus Test for Ethiopia’s Ambitious Leader. Ethiopian Prime Minister Abiy Ahmed has been busy trying to drive forward big privatization plans, contain restive parts of the country and make peace with neighbors.
Here is a list of the U.S. economic events happening this week.
Review Last weeks numbers here.
According to Thompson Reuters, the estimated earnings growth rate for the S&P 500 for 18Q3 is 21.6%. If the energy sector is excluded, the growth rate declines to 18.6%. The S&P 500 expects to see share-weighted earnings of $339.7B in 18Q3, compared to share-weighted earnings of $279.3B (based on the year-ago earnings of the current 505 constituents) in 17Q3.
All of the 11 sectors in the index expect to see an improvement in earnings relative to 17Q3. The energy and financials sectors have the highest earnings growth rates for the quarter, while the real estate sector has the weakest anticipated growth compared to 17Q3.
Thomson Reuters I/B/E/S
If you find this post helpful, please pass along to the investment community. If you would like to see any additional information, drop us a line and let us know.